Slowing Rates Of Return At BF Utilities (NSE:BFUTILITIE) Leave Little Room For Excitement

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at BF Utilities (NSE:BFUTILITIE) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for BF Utilities:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.15 = ₹2.6b ÷ (₹21b - ₹3.6b) (Based on the trailing twelve months to December 2021).

Thus, BF Utilities has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 11% it's much better.

See our latest analysis for BF Utilities

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how BF Utilities has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is BF Utilities' ROCE Trending?

There hasn't been much to report for BF Utilities' returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect BF Utilities to be a multi-bagger going forward.

In Conclusion...

We can conclude that in regards to BF Utilities' returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 29% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think BF Utilities has the makings of a multi-bagger.

On a final note, we found 5 warning signs for BF Utilities (3 are concerning) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.